Your 179 Deduction – It’s Back And Bigger Than Ever

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Issue: Fall 2008

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By Sally, McKenzie

This year, the buzz is bigger because of the boosted amount and the bonus! No, this isn’t a tongue twister;it’s fact, and something you should definitely investigate with your accountant. Section 179 of the Internal Revenue Code allows sole proprietorships, partnerships, and corporations, including LLCs, to expense the full amount of the investment in the year in which they are added to the business. Prior to section 179, it was necessary to depreciate the cost of these expenditures over a five- to seven-year period. This meant that, for instance, if you procured $50,000 in dental units, you would amortize them at the rate of $10,000 per year for the five years following its acquisition. With the advent of 179, you can take the entire $50,000 as a deduction in the first year, meaning significant tax savings for your practice.

It’s proposed that the 179 limit for 2009 will drop down to its previously scheduled $130,000 or even much less. Don’t let this opportunity pass!

Here’s where it gets more interesting and exciting for 2008. In the last few years the limit has hovered around the $100,000-125,000 mark per year for items such as dental units, digital radiography systems, computers (including off-the-shelf software), as well as furniture and fixtures. This year, the beefed-up amount brings the total to $250,000 as long as it does not exceed the business income for the year! But be forewarned-it’s proposed that the 179 limit for 2009 will drop down to its previously scheduled $130,000 or even much less. Don’t let this opportunity pass!

Whether you’re outfitting a new office, adding new digital imaging system, or implementing 3-D technology, consider this: An equipment investment of $100,000 could yield a savings of $40,000 for the first year after applying your 179 deduction-now that’s a fast return on investment (ROI)! Can you handle more excitement? For those whose expenditures are over $250,000, Fred Laubie, CPA, of Fred
Laubie & Associates offers this: “Above and beyond the bumped-up 179 deduction, your business can also claim firstyear bonus depreciation equal to 50% of the cost of most new equipment and software placed in service before December 31of this year.” And better still, this bonus is not limited to the
business’s income. But take note: This “generous” bonus, that can conceivably sky-rocket your savings, will expire at year-end unless Congress takes action, so consider it “temporary.”

According to Mr. Laubie, the 179 deduction is available to dentists even if they borrow the money or use specific types of leases, as advised by their accountants, for the acquisition. He cautions, “The 179 deduction doesn’t happen automatically; your accountant must elect it on your tax return by filling out form 4562.” Also of note, businesses still retain the option to depreciate if they choose not to take advantage of Section 179.

To top it off, typically, dental vendors offer additional year-end savings on all types of equipment. This savings, along with electing to use your ‘boosted’ 179 deduction, may provide you with the opportunity to move forward with those new products that could greatly enhance your practice and your daily work life.

Limiting factors for 2008: The 179 deduction cannot be greater than the business’s income and purchases cannot be greater than $800,000.

Sally McKenzie, Certified Management Consultant, is a nationally known lecturer and author. She is CEO of McKenzie Management, which provides highly successful and proven management services to dentistry since 1980 and is endorsed by the California Dental Association, McKenzie Management offers a full line of educational and management products, which are available on its Web site, www.mckenziemgmt.com.

In addition, the company offers a vast array of Practice Enrichment Programs and team training. Ms. McKenzie is the editor of the e-Management newsletter, which provides practice management tips and is sent complimentarily to practices nationwide. To subscribe, visit www.mckenziemgmt.com. Ms. McKenzie welcomes specific practice questions and can be reached toll free at 877-777-6151 or at sallymck@mckenziemgmt.com